JEDDAH: Saudi Arabia will soon have a full-fledged mortgage law as the consultative Shoura Council has passed the long-awaited law after completing debate on its four components, the Saudi Press Agency said. The draft law, which has to be approved by the Council of Ministers, will allow more Saudis to own property and banks to diversify income sources by providing loans to build real estate projects.
The four components of the law are: real estate financing system, system to monitor financing companies, lease financing system and real estate mortgage system, said Ahmed Al-Yahya, assistant secretary-general of the 150-member body.
He emphasized the importance of the law for the Kingdom’s economy and citizens. The law is designed to allow much wider access to property ownership in a country where only one out of five Saudis owns a home.
Al-Yahya said the Shoura had taken three months to study the new systems and hoped that there would be no obstacles in implementing the law. “We hope it will solve many problems that obstruct the growth of real estate market in the Kingdom,” he added.
The Shoura official believed that the new law would contribute to reducing real estate prices, providing more homes to Saudis and cutting inflation rates that hit 10.4 percent last month. “It will also lead to the establishment of new real estate firms and funds and open new channels of financing,” he said.
Criticism
Some businessmen, however, have criticized the draft law. Abdul Rahman Al-Zamil, a Shoura member and industrialist, said the law would not benefit 85 percent of Saudis whose monthly income is below SR5,000. “It will benefit the large real estate firms, large real estate investors, large financial institutions and the middle class,” Al-Madinah Arabic daily quoted Al-Zamil as saying.
John Sfakianakis, chief economist at HSBC’s Saudi subsidiary the SABB bank, said the mortgage law’s potential impact has been “hyped up” despite a favorable interest rate environment.
“The mortgage law will not necessarily be a turning point for the housing market as a lot of people have already reached their borrowing limits because of the stock market crash,” he said. “It will take more time than people envisage to solve the housing issue in Saudi Arabia ... It’s not going to be done in two years,” he added.
Sfakianakis added that “mortgage finance under a new legal frame work should grow since Saudi Arabia’s mortgage to GDP stands around one percent. However, mortgage finance and its pace of growth predicated on two essential variables: A longer period of tenure and level of personal finance to individuals, and the development of a collection system and protection of titles to property.”
At least two-thirds of Saudis do not own a home, against 35-32 percent in Europe and the United States, he said. Other estimates are lower, with Abdullatif Al-Shelash, managing director of Saudi Home Loans Co., saying in remarks published in December that only 22 percent of Saudis own a home.
The Kingdom has witnessed a boom in construction and infrastructure projects but realtors say the deficit in housing, especially for low-income households, has not been reduced.
Saudi Arabia will need some 4.5 million new housing units within the next five years to accommodate its rapidly growing population.
— With input from Khalil Hanware
